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Capital goods procurement with Product Cost Optimization

Capital goods procurement with Product Cost Optimization
by Florian Geiger

Capital goods procurement with Product Cost Optimization

Investment decisions have a long-term effect on the profitability of a company. To create complete cost transparency, the facility overhead costs must also be included in addition to material costs. This connection must be part of the planning for the investment. For your capital goods investment we analyze your requirements with you and scrutinize all specifications in order to optimize the profitability of your investment.

Capital goods procurement looks for the most meaningful solution

Operating costs often substantially exceed purchasing costs. The task for purchasing is to include the constantly changing market conditions, technical developments as well as their effect on the cost structure in their investment decisions. Through the evaluation of a multidisciplinary team comprehensive cost transparency for capital goods procurement is prepared that then allows the most optimal solution for the company.

With the core cost approach which we use not only in purchasing but also in projects for product cost optimization and in product development, the hard cost minimums are developed. Then the asset investment is subsequently broken down into units and each function scrutinized with an eye to its role in the attainment of core targets. The goal is to determine the optimal design for the entire system.

Product Cost Optimization strengthens Procurement

Proceeding from this basis additional requirements such as increasing quality requirements or higher versatility can be evaluated monetarily in a „surcharge catalog“. In consensus with the various departments it must be determined why such additional costs should be taken. When this information is available then the most profitable specifications for the company can be determined.

In addition to internal suggestions, capital goods procurement also includes suppliers intensively in the process. Target goals, product and product cost optimization as well as competitive alternatives are jointly discussed. In this way purchasing simultaneously strengthens its future negotiating position. Often through detailed preparation and product cost optimization analysis, further ideas for product improvement are developed with the supplier.

Tailored Capital Goods Procurement

An investment must optimally fulfill its requirements, but optimization may not immediately result in a new development. Arising from the results drivers in the respective project we define the correct base ratio for optimization. You profit in your capital goods procurement along with the best use-expense ratio as well as our experience in facility construction, from projects in product cost optimization in other areas as well as technical sales and pricing processes in engineering.

ENG Produktkostenoptimierung 600 - Capital goods procurement with Product Cost Optimization

Typical results from Capital Goods Procurement

  • Reduction of investment costs of typically more than 10%
  • Significant reduction of life cycle costs

With a life cycle of up to 40 years per facility, all savings potential in purchasing and technology for an energy producer were determined. First transparency over all life cycle costs was obtained: overhead contributed a good 50% of total costs. In the second step the facility was broken down into its main components and core functionality was determined. Through counter-calculations based on a supplier’s standard system the earlier price intransparency was penetrated and savings of more than 30% were achieved.

During negotiations with the suppliers not only were comprehensive product cost optimization then achieved but also technical improvements. Decisive for project success was the readiness to meet the specifications of the newly defined target. Thus additional savings, for example in internal costs, were identified by the derivation of cost minimum through technical inquiries and product cost optimization.